Should we expand OAS instead of CPP?

Retirement and Pension Planning

Recently I asked lawyer Ari Kaplan, a partner in the Pension and Benefits Group of the Toronto law firm Koskie, Minsky, L.L.P why he thinks Canada needs an enhanced Canada Pension Plan.*

“Very simple. It’s currently the only universal and mandatory savings scheme in the country,” he said. “It’s portable from job to job and it covers both employees and self-employed people,” he said.

In his view the decision made by the late federal Finance Minister Jim Flaherty and his provincial counterparts was a political one in reaction to lobbying from both the financial services sector and employers that do not currently offer a pension at work and do not want to be compelled to contribute.

“Anyone who tells you the contributions are a tax is not telling the truth. This is employee money. It goes into a pension fund and is paid out to employees after retirement,” Kaplan said.

But shortly after I interviewed Kaplan, I came on an interesting article in the Canadian Investment Review by Gerry Wahl suggesting that maybe the better approach is to expand OAS and not CPP.

Wahl argues that expanding CPP would represent a real cash cost for employers with higher cash premiums affecting business cash flow and competitiveness. He also notes that the reduction in disposable income for employees could have the unintended consequence of lower contributions to DC plans, DPSPs, PRPPs, RRSPs, TFSAs and RESPs.

Then he concludes as follows:

“Depending on the objectives, an alternative to CPP expansion might be to expand the OAS system. OAS is available (with minor exceptions) to all Canadians, it’s fairly straight forward, and the claw back feature allows recipient-income targeting. OAS is paid out of general revenues and is a major annual federal government expense.

Why not a straightforward, transparent approach?

 Determine and publicize the annual cost of increased benefits, use OAS as the vehicle, and pay for the benefits on an annual cash basis by dedicating a specific percent increase in GST to paying for OAS. This has several advantages: benefits could be targeted and limited, costs would be transparent and Canadians would know what the additional GST was for.”

It’s an interesting idea. I hope someone above my pay grade will stress test the idea to see if it could possibly work. Meanwhile both Kaplan and Wahl agree that whether CPP should be expanded could be one of the defining issues in the October 2015 federal election.

I say, bring it on. Canadians deserve to have their say at the ballot box.

*The podcast of this interview and an edited transcript  will be posted on savewithspp.com on April 3rd.

2 Comments

  1. And of course, for those who have done their literature review of CPP expansion ideas, the 2004 paper by Goyal and Laporte proposes that a voluntary expansion of the CPP be adopted instead of a mandatory one. This idea has the merit of not crushing the small private sector with a payroll tax it cannot afford (or will only afford by laying off staff), and of creating a healthy competition in the private sector by giving Canadians more choice instead of less (and it avoids burdening the public treasury with a dramatic increase in OAS payments)….

  2. Poverty amongst seniors is very low in Canada, especially when compared to that of non-seniors. How does it make sense to raise the least progressive tax on everyone in order to fund increased benefits for seniors? About 95% of seniors receive OAS, so low- and middle-income people would be paying higher taxes to fund a program that is very badly targeted. If Wahl is concerned about senior poverty, then it would be better to increase GIS, which is much more effectively targeted to seniors who need assistance. Middle- and high-income seniors don’t need more handouts.

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